FOREX-China's yuan slumps to 2019 low as trade war escalates

LONDON, May 13 (Reuters) - China's yuan was set for its worst daily fall in nine months on Monday as trade negotiations between the U.S. and China ended after President Donald Trump raised tariffs on Chinese goods.

Currency moves in response to the latest trade hostilities have been muted, but on Monday the yuan fell 0.8% to 6.9040, its weakest since Dec. 27. Some analysts say it may breach 7 per dollar in coming months, a level last seen during the global financial crisis.

China would probably use its vast currency reserves to stop any plunge through 7 to the dollar, which could trigger speculation and heavy capital outflows.

Investors bid up the yen, which is considered a safe haven in times of stress given Japan´s status as the world´s largest creditor and its huge hoard of assets abroad.

The yen was 0.25% higher at 109.700 yen, near last week's three-month high of 109.470.

"We´re waiting to see if China retaliates to the latest round of U.S. tariffs ... and continue to favour the yen on a short-term basis and expect the market to remain focused on the yuan," said Chris Turner, an ING currency strategist.

The world's two biggest economies appeared deadlocked on Sunday. Washington demands changes to Chinese law; Beijing says it won't swallow any "bitter fruit" that harms its interests.

President Trump and his Chinese counterpart Xi Jinping are likely to meet during a G20 summit in Japan at the end of June and discuss trade.

The Australian dollar shed 0.3% to $0.6976. A drop below $0.6960 would take the currency, already burdened by a dovish shift by the Reserve Bank of Australia, to its lowest since early January.

The Aussie is sensitive to shifts in risk sentiment and also serves as a proxy for trades related to China, Australia's largest trading partner.

The dollar index against a basket of six major currencies was flat at 97.318.